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2008-11-19 e-packet
~~xs ~ SPECIAL 1!/IEETING 0 r n J O REDEVELOPMENT AGENCY c'~LIFOR~l~ CITY OF SOUTH SAN FRANCISCO CITY COUNCIL OF THE CITY OF SOUTH SAN FRANCISCO P.O. Box 711 (City Hall, 400 Grand Avenue) South San Francisco, California 94083 Meeting to be held at: CITY HALL CONFERENCE ROOM 400 GRAND AVENUE SOUTH .SAN FRANCISCO NOVEMBER 19, 2008 6:30 p.m. NOTICE IS HEREBY GIVEN, pursuant to Section 54956 of the Government Code of the State of California, the Redevelopment Agency and the City Council of the City of South San Francisco will Bold a Special Meeting on Wednesday, the 19t1i day of November, 2008, at 6:30 p.m., at the City Hall in the Large Conference Room, 400 Grand Avenue, South ,San Francisco, California. Purpose of the meeting: 1. Call to Order. 2. Roll Call. 3. Public Comments- Comments are limited to items on the Special meeting Agenda. 4. Resolution amending the Affordable Housing Agreement between the City of South San Francisco and SummerHill Homes for the development of Park Station. 5. Closed Session: Conference with Legal Council: Anticipated Litigation (Pursuant to Government Code Section 54956.9 (c).) Initiation of Litigation: One Case. 6. Update on 2005 Redevelopment ("RDA") bond proceeds and RDA Financial update. Adjournment. SPECIAL REDEVELOPMENT AGENCY & CITY COUNCIL NOVEMBER I9, 2008 MEETING AGENDA PAGE 2 Staff DATE: November 19, 2008 TO: Honorable Mayor and City Council FROM: Marty Van Duyn, Assistant City Manager SUBJECT: A RESOLUTION AMEI~TDING THE AFFORDABLE HOUSING AGREEMENT BETWEEN THE CITY- OF SOUTH SAN FRANCISCO AND SUMMERHILL HOMES FOR THE DEVELOPMENT OF PARK STATION R E C~ 1 VI I VI E l~ D A' I' I O I!T It is recommended that the City Council adopt the attached resolution amending the Affordable housing Agreement between the City of South San Francisco and Summerhill homes for the development of Park Station. BACKGROUND/DISCUSSION The City of South San Francisco's Inclusionary Housing Ordinance requires that twenty percent (20%) of all unts in a housing development be affordable to low- and moderate-income families.1112006, the City approved the development of Park Station, aninety-nine unit housing proj ect on El Canuno Real. As required by the Inclusionary Housing Ordinance, SummerHill entered into an Affordable Housing Agreement (AHA) requiring it to provide twenty affordable below market rate (BMR) units on-site. SummerHill became the first developer subject to recent revisions in the Inclusionary Housing Ordinance that required deeper affordability than previously requiredl. With the approaching completion of Park Station, staff began working v~~ith First Home, its first tune homebuyer administrator, to find buyers for the below market rate units. However, on October 9, 2008, the City received a letter from SummerHill Homes requesting that the City accept a $2,000,000 payment in-lieu of providing the agreed upon twenty affordable units (see Exhibit A). SummerHill explained that the imploding housing market combined with the credit crisis was having a severe financial effect on the project. According to SummerHill, unless it found relief from the affordable housing obligation it could potentially face foreclosure or be forced to seek regulatory relief fiom the affordable housing requirement through the courts. Upon receiving the letter from SummerHill, City 1 Prior to June, 2004, the Cite used adjusted incomes provided by the Department of Housing and Urban Development (HUD) to determine housing affordability and did not require units to be affordable to various income levels within the Lower- and median-income ranges. Consequently, use of these standards resulted in home prices and rents that were not truly affordable to low- and moderate-income families. With the completion of Solaire and the resulting unaffo~~dable below market rate units, the City Council at that time elected to modify the Inclusionary Housing Ordinance to ensure that below market rate units would be affordable to the targeted income groups. Staff Report Subject: Amendment to Park Station Affordable Housing Agreement Page 2 staff began researching both the legitimacy of the statements made in the letter as well as its options, and reached the following conclusions: First, there is no denying the severity of the housing market. According to a recent article in the San Francisco Chronicle, home values in South San Francisco have decreased 19.4% (on per square foot basis) from last October2. In a review of the regional housing market, comprised of South San Francisco, San Bruno and Colma, First Home found i9 one-bedroom units selling for Less than $200,000,16 units selling between $200,000 and $250,000, and 12 units selling between $250,000 and $300,000. Although the Park Station units are of higher quality than these re-sale homes, the homes nevertheless represent a compelling alternative to the one-bedroom units at Park Station which start at $348,880. Combined with the credit crisis, City staff can recognize the difficult selling environment SummerHill faces. Second, SummerHill estimates it would lose $5.3 million dollars in revenue by providing the twenty affordable units. When SummerHill first undertook this project in 2006 the housing market was booming and by proceeding with the project it must have believed it would be able to compensate for this loss by the profits it would generate through the sale of the market rate units. However, the worsening market conditions have not only eliminated market rate unit profits, it has turned them into losses. As currently structured, SummerHill asserts, it is in a position to loss $9 million on the project between the affordable and market rate units. To verify the veracity of these figures, the City hired Keyser Marston Associates to review SummerHill's books and will report back to the City prior to the City Council taking action on this matter. Given SummerHill's situation with Park Station, the City faced several options. It could elect to force SummerHill to provide the twenty units as stipulated in the Affordable Housing Agreement, accept the $2,000,000 offer and use these funds for another affordable housing project, or find an alternative scenario that would assist the Parlc Station project but result in the preservation of affordable units on- site. If the City elects to force SummerHill to provide the affordable units as required by the AHA, it faces the possibility of forcing the project into foreclosure, in which case the City's ability to require that the twenty affordable units be sold as such would be much more complicated3, or into litigation. Although staff and the City Attorney believe foreclosure is not a realistic option as it could result in even bigger losses to SummerHill, and that litigation would result in a favorable judgment for the City, neither option best meets the affordable housing needs of city residents. In the first scenario the units would be lost or would require a substantial investment by the City in order to preserve. In the second scenario the units would be held vacant for months or even years until the litigation was resolved. 'Home Prices Down in 90% of Bay Area Zip Codes, San Francisco Chronicle, November 9, 2008. ' In order for a lender to provide construction financing, all affordable housing agreements must provide a clause that, upon foreclosure by the lender, the affordable housing requirement is eliminated. Without this clause no lender would ever be willing to provide construction financing. Staff Report Subject: Amendment to Park Station Affordable Housing Agreement Page 3 Accepting the $2,000,000 in-lieu payment from SummerHill would provide for some public benefit as the City would use the funds for an affordable housing project elsewhere. However, this option would be a complete departure from the requirements of the Inclusionary Housing Ordinance, the funds would not benefit the income levels targeted by the Ordinance (50% to 120% median income) since most City sponsored projects target families at or below 60% of median income, and it would not be possible to create twenty units with $2,000,000. The third option was for the Cite was to negotiate an agreement with SummerHill that would reduce the risks of foreclosure and litigation, retain as many units as possible and provide a suitable public benefit for any units that maybe lost. As indicated by SummerHill's letter dated November 1 1, 2008, (see Exhibit B) staff elected to bring to the City Council a viable third option for its consideration. The proposed Amended Affordable Housing Agreement would preserve fifteen out the twenty affordable units at Park Station and provide $400,000 for Mid-Peninsula's affordable housing development or another affordable housing project. Each of the agreed upon elements contributes a portion of the total financial relief SummerHill is requesting in return for the preservation of the fifteen remaining units and the financial contribution to Mid-Peninsula's housing project. The value of these concessions is estimated at $1.2 million versus SummerHill's original request valued at $3.3 million. The specific details of this Agreement are: Eight buyers signed purchase agreements to buy affordable units at Parlc Station (but SummerHill had not executed them} prior to SummerHill making its initial request to the Cite. These eight buyers will be allowed to proceed with their purchase although the cost of their units will increase slightly by about 17% to 27% (see Exhibit C). The City was able to allow this increase by changing certain assumptions on how the affordable price is calculated. First Home has indicated that these buyers will not be impacted by the price increase and will be able to complete their purchases. Seven units currently not in contract will remain in the program but be sold at slightly higher prices ranging between 7% and 39% (see Exhibit C). The City was able to allow these price increases by changing certain assumptions on how the affordable price is calculated. First Home has indicated it will not have a problem finding buyers at the higher prices given how low the initial prices were for these units. About half of the City's financial concession comes from the release of four two-bedroom units in return for a contribution of $400,000 to Mid-Peninsula's housing project and the release of one one- bedroom unit in return for keeping the price of another affordable unit targeted to a family at 60% median income. The rationale for releasing the two-bedroom units as apposed to one-bedroom units is two fold. First, the larger units provide more revenue for SummerHill with the least number of units released from the program. Second, by retaining fifteen units the project will continue to meet the redevelopment law requirements that 15% of units be affordable to low- and moderate-income families. This is an obligation that would shift to the Redevelopment Agency if the project had fewer than fifteen units. Equally important, the City will receive ABAG production credit for fifteen units whether they are one- or two-bedroom units. Staff Report Subject: Amendment to Parlc Station Affordable Housing Agreement Page 4 Finally, SummerHiil is considering the option of converting Park Station into a rental development. All of the provisions of the for-sale agreement would carry over to the rental option should Park Station convert into a rental complex (i.e. fifteen units would be affordable at the same income levels indicated and SummerHill would still make the $400,000 contribution to Mid-Peninsula's housing project). The only difference is that the condominium map would remain on the project and should SummerHill decide to sell the units as condominiums the development would revert back to the original AHA where ali 20 units would be sold as stipulated therein. Furthermore, the Amended Affordable Housing Agreement stipulates that SummerHill has 60 days to make a decision on whether to convert to a rental project or proceed with the sale of units. FUNDING No City funds will be needed as a result of this amendment. CONCLUSION Despite the challenges the City has faced implementing the Inclusionary Housing Ordinance, the Ordinance has provided a substantial benefit to the City. Excluding Park Station, to date the Ordinance has resulted in 58 low-income and 86 moderate-income units. That is a total of 144 affordable units occupied bylow- and moderate-income families that that would not exist without the Cit~~'s Inclusionary Housing Ordinance. The developments at Park Station are a stumbling block to the program but even these are minimized should the City Council approve the Amended Affordable Housing Agreement. The proposed Agreement manages to retain 15 affordable units under very unusual market and credit conditions, avoids possible adverse consequence from foreclosure and litigation, and provides a significant contribution to the development ofMid-Peninsula's affordable housing development. Therefore, staff recommends that City Council adopt the attached resolution amending the Affordable Housing Agreement between the City of South San Francisco and SummerHill Homes for the development of Park Station. By: ,~~~ /W -~ ~/ Marty Van Duyn Assistant City Manager ~.. ~, Approvad: r ~ `~ ~._._.~. `~`~ M. Nagel, City Manager ~-- Attachment: Resolution Amended Affordable Housing Agreement Exhibit A: SummerHill letter dated October 9, 2008 Exhibit B: SummerHill letter dated November 1 1, 2008 Exhibit C: Revised BMR Pricing BMN:MVD:AFS RESOLUTION NO. CITY COUNCIL, CITY OF SOUTH SAN FRANCISCO, STATE OF CALIFORNIA A RESOLUTION APPROVING AN AMENDED AND RESTATED AFFORDABLE HOUSING AGREEMENT WITH SUMMERHILL HOMES, LLC FOR THE PARK STATION PROJECT WHEREAS, on October 25, 2007, the City and SummerHill Homes, LLC, a California limited liability company ("Developer") entered into an Affordable Housing Agreement ("Affordable dousing Agreement") for the Park Station project ("Project") pursuant to which Developer is required to designate 20 of the 99 condominiums in the Project as below market rate units ("BMCR Units"); and WHEREAS, subsequent to the execution of the Affordable Housing Agreement, the local housing market has experienced a severe and sudden downturn. The downturn has resulted in a significant decrease in the value of housing in the area, creating unanticipated difficulties in selling units in the Project, including the Below Market Rate Units. The downturn in the housing market has been coupled with unusual problems in national and local credit markets, malting it difficult for home buyers to obtain lending and for developers to finance or refinance projects; and WHEREAS, Developer desires to move forward with the Project and to supply affordable housing to the City; and WHEREAS, In light of that highly unusual combination of economic circumstances describe above, the Developer has requested, and City has agreed, to amend the Affordable Housing Agreement to permit Developer to provide 15 BMR Units and to pay an in-lieu fee in the amount of $400,000 instead of providing 20 BMR Units; and WHEREAS, the City Attorney has prepared an Amended and Restated Affordable Housing Agreement ("Amended Agreement") with Developer, which is attached to this resolution. NOW, T~IEREFORE, BE ~T RESOLVED that the City Council of the City of South San Francisco, does hereby: Approve the Amended Agreement substantially in the form attached to this resolution. 2. Authorize the Cite Manager to execute the Amended Agreement; to make revisions to the Amended Agreement, with the advice of counsel, which do not materially or substantially increase the City's obligations thereunder; to sign all documents; to make all approvals and take all actions necessary or appropriate to carry out and implement the intent of this Resolution. -1- * * * ~- * ~ I hereby certify that the foregoing resolution was adopted by the City Council of the City of South San Francisco at the regular meeting held on the th day of October, 2008, by the following vote: AYES: NOES: ABSTENTIONS ABSENT: Attest: City Clerk 2 -2- RECORDING REQUESTED BY: DEPARTMENT OF ECONOMIC AND COMMUNITY DEVELOPMENT CITY OF SOUTH SAN FRANCISCO 400 GRAND AVENUE SOUTH SAN FRANCISCO, CA 94080 WHEN RECORDED MAIL TO: DEPARTMENT OF ECONOMIC AND COMMUNITY DEVELOPMENT CITY OF SOUTH SAN FRANCISCO 400 GRAND AVENUE SOUTH SAN FRANCISCO, CA 94080 Documentary Transfer Tax $ EXEMPT County of San Mateo ~ City of South San Francisco of W AMENDED AND RESTATED AFFORDABLE HOUSING AGREEMENT BETWEEN THE CITY OF SOUTH SAN FRANCISCO AND SUMMERHILL HOMES, LLC This Amended and Restated Affordable Housing Agreement ("Agreement"} is entered into this day of November 2008 (the "Effective Date"), by and between the City of South San Francisco, a municipal corporation ("City"), and SummerHill Homes, LLC, a California limited liability company ("Developer") as a condition of approval of the development of the real property described in Exhibit A attached hereto (the "Project Property"). This Agreement amends and restates in its entirety an Affordable Housing Agreement dated as of October 25, 2007 by and between City and Developer and recorded in the official records of San Mateo County as document 2007165906 ("Affordable Housing Agreement"). City and Developer shall be collectively referred to hereinafter as the "Parties." RECITALS WHEREAS, Chapter 20.125 of the South San Francisco Municipal Code sets forth the requirements for Inclusionary Housing ("Inclusionary Housing Ordinance"); and WHEREAS, the Developer is planning to construct condominiums on the Project Property (the "Project") and has submitted a site development plan for the Project; and SummerHill Homes, Inc. -Amended and Restated Affordable Housing Agreement Page 1 -3- WHEREAS, the Developer is required by the Inclusionary Housing Ordinance to set aside twenty percent (20%) of new housing as low- and moderate-income level housing ("Below Market Rate Units"); and WHEREAS, on October 25, 2007, Developer and City executed the Affordable Housing Agreement pursuant to which Developer is required to construct 20 Below Market Rate Units; and WHEREAS, subsequent to the execution of the Affordable Housing Agreement, the local housing market has experienced a severe and sudden downturn. The downturn has resulted in a significant decrease in the value of housing in the area, creating unanticipated difficulties in selling units in the Project, including the Below Market Rate Units. The downturn in the housing market has been coupled with unusual problems in national and local credit markets, making it difficult for home buyers to obtain lending and for developers to finance or refinance projects. In light of that highly unusual combination of economic circumstances, Developer has requested, and City has agreed, to amend the Affordable Housing Agreement to permit Developer to construct 1 ~ Below Market Rate Units and pay to the City an in-lieu fee in the amount of $400,000 in lieu of constructing 20 Below Market Rate Units; and WHEREAS, the purpose of this Agreement is to amend and restate the Affordable Housing Agreement in its entirety. NOW THEREFORE, the City and the Developer agree as follows: ~i~i~+ E+ I~NT 1. As a condition of developing and constructing ninety-nine (99) condominiums on the Project Property, Developer shall designate fifteen (15) condominiums as Below Market Rate Units, ten (10) of which shall be 1-bedroom units and five (5) of which shall be 2-bedroom units. The Below Market Rate Units shall be affordable to low- and moderate-income households guaranteed by deed restrictions or other enforceable covenants running with the land and shall be located in the areas identified in Exhibit B attached hereto. 2. Developer shall sell the 15 Below Market Rate Units to income eligible households in accordance with the following terms and conditions: (a) The sales price for the Below Market Rate Units shall be determined based on an assumed household size of 2 persons fora 1-bedroom unit and 4 persons fora 2- bedroom unit. (b) As of the Effective Date, Developer has received offers ("Outstanding Offers") from low- and moderate-income buyers ("Pending Buyers) to purchase the following eight (8) Below Market Rate Units ("Pending Units"): SummerHill Homes, Inc. -Amended and Restated Affordable Housing Agreement Page 2 -4- Unit # Unit Type Income Category (% of Median Income) 101 1 BR 60-70% 104 2 BR 60-70% 106 2 BR 50-60% 115 1 BR 50-60% 124 2 BR 80-90% 205 2 BR 70-80% 214 1 BR 60-70% 304 2 BR 90-100% For the purposes of the above table, "median income" shall mean the unadjusted median income for a San Mateo County household in the San Francisco Primary Metropolitan Statistical Area, published annually by the Department of Housing and Urban Development. Within 60 days from the Effective Date, Developer shall accept each of the Outstanding Offers from the Pending Buyers for the Pending Uruts, and shall make good faith efforts to assist each of the Pending Buyers to secure purchase money financing to purchase the Pending Units and good faith efforts to consummate the sale of each of the Pending Units. In the event a Pending Buyer cannot obtain purchase money financing to purchase a Pending Unit, or simply decides not to move forward with the purchase of a Pending Unit, Developer may sell the Pending Unit to another qualified buyer whose household gross income is in the upper end of the designated income category for such unit as shown on the chart above. For example, if the designated income category for a Pending Unit is 60-70% of median income, Developer may sell the Pending Unit to a buyer whose gross household income is 70% of median income. (c) The number of bedrooms and designated income categories for the remaining seven (7) Below Market Rate Units shall be as follows: Unit # Unit Type Income Category (% of Median Income) 216 1 BR 60% 210 1 BR 80% 202 1 BR 90% 313 1 BR 90% 121 1 BR 100% 220 1 BR 120% 223 1 BR 120% SummerHill Homes, Inc. -Amended and Restated Affordable Housing Agreement Page 3 b -5- For the purposes of the above table, "median income" shall mean the unadjusted median income for a San Mateo County household in the San Francisco Primary Metropolitan Statistical Area, published annually by the Department of Housing and Urban Development. (d) The Below Market Rate Units shall be located on the Project Property, within close proximity to the El Camino Corridor and the Downtown. The Developer and the City acknowledge this is an ideal area for such Below Market Rate Units as it is in close proximity to and has access to employment opportunities, urban services and transportation facilities. (e) Occupancy of the Below Market Rate Units shall be established concurrently with occupancy of the market rate units Located on the Project Property. This requirement shall be effective as of the date the first unit is occupied on the Project Property. This requirement for the Below Market Rate Units shall remain in effect even in the event all market rate units on the Project Property become unoccupied. (f) Developer shall require each buyer of a Below Market Rate Unit to execute a Resale Restriction and Right of First Refusal Agreement substantially in the form attached hereto as Exhibit C ("Resale Restriction Agreement"). The Resale Restriction Agreement shall be recorded against each parcel containing a Below Market Rate Unit upon close of escrow of sale for such Below Market Rate Unit. The Below Market Rate Units shall remain restricted and affordable to the designated income group for a term of fifty-five (55) years, commencing on the date each Below Market Rate Unit is sold. The restrictions shall apply to all subsequent buyers. (g) Developer shall work with the City and/or the City's First Time Homebuyer Administrator to identify and qualify eligible buyers for the Below Market Rate Units. At the time of sale of each Below Market Rate Unit, Developer shall pay an administrative fee to reimburse the City for all administrative/processing costs and fees incurred in processing the sale of the Below Market Rate Units, which may include First Time Homebuyer Administrator fees and costs and processing fees for First Time Homebuyer loans by the City to eligible buyers. 3. Within ten (10) days following the Effective Date, Developer shall pay to City in- lieu fees in the amount of $400,000. 4. Notwithstanding Section 2, within 60 days from the Effective Date, Developer may elect to convert the Project from afor-sale project to a rental project. Developer shall provide City with timely notice of its election to convert the Project to a rental project. In the event Developer elects to convert the Project to a rental project, the following terms and conditions shall apply: (a) The number of bedrooms and designated income categories for the rental Below Market Rate Units shall be as set forth in Section 2(a) and (b) above. SummerHill Homes, Inc. -Amended and Restated Affordable Housing Agreement Page 4 -6- (b) The rental price for the Below Market Rate Units shall be determined based on an assumed household size of 2 persons fora 1-bedroom unit and 4 persons for a 2-bedroom unit. (c) Developer shall provide the Pending Buyers with the opportunity to rent the Pending Unit upon which they made an offer. If a Pending Buyer declines to rent the Pending Unit upon which he or she made an offer, Developer may rent such Pending Unit to an eligible household whose gross income is in the upper end of the designated income category for such unit. (d) Developer shall execute a Regulatory Agreement for the Proj eci, which shall be subject to City Council approval and recorded against the Project Property. (e) The condominium map shall remain on the Project Property. In the event Developer or its successor in interest decides to convert the Project from rental to for- sale, upon sale of the first unit in the Project, the Project shall automatically revert back to and be governed by the 2007 Affordable Housing Agreement. ~. Developer shall indemnify, defend with counsel selected by the City, and hold harmless the City and its officials, officers, employees, agents, and volunteers from and against any and all losses, liability, claims, suits, actions, damages, and causes of action arising out of any personal injury, bodily injury, loss of life, or damage to property, or any violation of any federal, state, or municipal law or ordinance related to the implementation of this Agreement and/or the sale of the fifteen (15) Below Market Rate Units. 6. Developer shall pay an administrative fee to reimburse the City for all administrative /processing costs and fees incurred in processing the affordable housing plan, which may include reasonable attorney's fees and cost, and implementing the requirements of the Inclusionaxy Housing Ordinance. Developer shall also reimburse City for the cost of retaining Keyser Marston Associates to verify Developer's loss calculations. 7. This Agreement shall run with the Project Property and shall be binding on the Parties hereto and their successors and assigns. This Agreement shall be recorded on the Project Property on or as soon as practicable after the Effective Date. 8. Developer and subsequent buyers shall provide City, or its assigned, a first right of refusal in the form attached hereto as Exhibit C to purchase the Below Market Rate Units if any of the individual units, are offered for sale at any point during the fifty-five (5~) year affordability period. The notice of offer to sell a Below Market Rate unit shall be submitted in writing to the Director of the Department of Economic and Community Development. Within thirty (30) days of its receipt, the City, or its assigned, shall indicate its intent to exercise the first right of refusal for the purpose of providing affordable housing, and close escrow within ninety (90) days. SummerHill Homes, Inc. -Amended and Restated Affordable Housing Agreement Page 5 -~- 9. All obligations relating to a Below Market Rate Unit shall transfer from Developer to the buyer of such unit and its assigns upon sale of such Below Market Rate Unit. Upon the sale by Developer of all Below Market Rate Units, Developer shall be released from, and shall have no further obligations under this Agreement. Such release shall be effective upon the sale of the last Below Market Rate Unit and shall not require any further action or documentation by any party to this Agreement. 10. Any amendments to this Agreement shall be processed in the same manner as an original application for approval pursuant to Section 20.125.150 of the South San Francisco Municipal Code. Nothing, however, shall prevent the body granting final approval of the project development, from modirying the Location and phasing of inclusionary housing as a condition of approval for the Project. 11. The laws of the State of California shall govern this Agreement. In the event that either party brings any action against the other under this Agreement, the Parties agree that trial of such action shall be vested exclusively in the state courts of California in the County of San Mateo or in the United States District Court for the Northern District of California. 12. If a party to this Agreement brings any action, including an action for declaratory relief, to enforce or interpret the provision of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees in addition to any other relief to which that party may be entitled. The court may set such fees in the same action or in a separate action brought for that purpose. 13. If a court of competent jurisdiction finds or rules that any provision of this Agreement is invalid, void, or unenforceable, the provisions of this Agreement not so adjudged shall remain in full force and effect. The invalidity in whole or in part of any provision of this Agreement shall not void or affect the validity of any other provision of this Agreement. 14. Any notice or demand shall be made by certified or registered mail, return receipt requested, or reliable overnight courier to the address of the respective parties set forth below: Developer: SummerHill Homes, LLC, a California Limited Liability Corporation 777 California Avenue Palo Alto, CA 94304 Attn: Elaine Breeze Telephone: (650) $57-0122 Facsimile: (650} 857-1077 City: City of South San Francisco -City C1erlc 400 Grand Avenue South San Francisco, CA 94080 SummerHill Homes, Inc. -Amended and Restated Affordable Housing Agreement Page 6 -$- 15. Notwithstanding any previous provision of this Agreement, the terms of this Agreement shall be interpreted in accordance with the provisions of Chapter 20.125 of the South San Francisco Municipal Code. 16. This Agreement may be executed in multiple counterparts, each of which shall be an original and all of which together shall constitute one instrument. 17. This Agreement, including Exhibits A through C attached hereto and incorporated herein, represents the entire and integrated agreement between City and the Beveloper with respect to the su'oject matter hereof, and supersedes a1i prior negotiations, representations or agreements, either written or oral with respect thereto. SIGNATURES ON FOLLOWING PAGE. SummerHill Homes, Inc. -Amended and Restated Affordable Housing Agreement Page 7 -9- IN WITliTESS THEREOF, the parties have executed this Agreement as of the date first written above. OWNER: SummerHill Homes, LLC, a California limited liability corporation CITY: CITY OF SOUTH SAN FRANCISCO, a municipal corporation Elaine Breeze Senior Vice President Barry M. Nagel, City Manager APPROVED AS TO FORM: Steven T. Mattas, City Attorney SummerHill Homes, Inc. -Amended and Restated Affordable Housing Agreement Page 8 -10- Exhibit A Project Property (attach legal description) SummerHill Homes, Inc. -Amended and Restated Affordable Housing Agreement Page 4 -11- Exhibit B Project Map (attach project map) SummerHill Homes, Inc. -Amended and Restated Affordable Housing Agreement Page 10 -12- Exhibit C Form of Resale Restriction and Right of First Refusal Agreement RECORDING REQUESTED BY COMMUNITY DEVELOPMENT DEPARTMENT CITY OF SOUTH SAN FRANCISCO 400 GRAND AVENUE SOUTH SAN FRANCISCO, CA 94080 AND WHEN RECORDED MAIL TO ECONOMIC AND COMMUNITY DEVELOPMENT CITY OF SOUTH SAN FRANCISCO 400 GRAND AVENUE SOUTH SAN FRANCISCO, CA 94080 Documentary Transfer Tax $ EXEMPT County of San Mateo City of South San Francisco USE SPACE ABOVE THIS LINE FOR RECORDER'S RESALE RESTRICTION AND RIGHT OF FIRST REFUSAL AGREEMENT FOR BELOW MARKET RATE PROPERTY This Resale Restriction and Right of First Refusal Agreement for Below Market Rate Property ("Agreement") is entered into as of this day of , 20 , by and between the CITY OF SOUTH SAN FRANCISCO ("CITY") and ("OWNER"). RECITALS WHEREAS, Chapter 20.125 of the South San Francisco Municipal Code sets forth the requirements for Inclusionary Housing ("Inclusionary Housing Ordinance"); and SummerHill Homes, Inc. -Amended and Restated Affordable Housing Agreement Page 11 -13- WHEREAS, the developer is required by the Inclusionary Housing Ordinance to set aside twenty percent (20%) of new housing as low- and moderate-income level housing; and WHEREAS, the developer is meeting this requirement by selling the required number of Below Marlcet Rate Units; and WHEREAS, the City has agreed that onsite sale of the Below Market Rate Units will be sufficient to meet the requirements of the Inclusionary Housing Ordinance; and WHEREAS, this Resale Restriction and Right of First Refusal Agreement for Below Market Rate Property is required as a condition of discretionary permits for development of the Project Property and shall be recorded against the Below Market Rate Units; and WHEREAS, the intent of the CITY is to preserve the number and availability of affordable homes in the program for persons with low or moderate incomes for the longest feasible time; NOW, THEREFORE, in consideration of the benefits received by the OWNER, OWNER and CITY agrees as follows: 1. Premises. The real property which is the subject of this Agreement is commonly known as ,more fully described in the legal description attached hereto and incorporated herein by reference as Exhibit "A." Said real property ("Premises") is hereby designated as a Below Market Rate Unit ("BMR unit") and shall be subject to the terms and conditions herein set forth. 2. Occupancy and Ownership Restricted to Eligible Households As used in the Agreement, the term "Eligible Household" shall mean a Household which has a household income not to exceed % of the unadjusted median yearly income for a family of (___), in San Mateo County as published by the Department of Housing and Community Development (HCD) from time to time. In the event that the income determinations are no longer published, or have not been updated for a period of at least 18 months, the CITY may develop such other reasonable methods as it may choose to determine the income restrictions. During the term of this Agreement, OWNER must occupy the Premises as his or her principal residence. The OWNER shall be presumed to be occupying the Premises as his or her principal residence if the OWNER is living in the Property far at least ten (10) months out of each calendar year. Pursuant to Paragraph 20, OWNER may not lease or rent the Premises for any period of time without the express, prior, written permission of CITY. Any lease or rental in violation of the provisions of this Agreement shall be prohibited and void. Except as so provided in this Agreement, all leasing or rental of the Premises shall be a Prohibited Transfer as defined in this Agreement, and subject to the provisions of this Agreement. By purchasing Premises subject to the Agreement, owner and all successive SummerHill Homes, Inc. -Amended and Restated Affordable Housing Agreement Page 12 -14- owners and assigns, hereby acknowledge that the Premises is restricted to owner- occupancy by an Eligible Household and shall not be leased to a non-owner without the written consent of the CITY. Transferee shall execute an agreement under the terms of which the transferee shall assume all of the obligations and duties of owner and agree to be bound by the restrictions of this Agreement 3. Supersession. This Agreement shall supersede any and all resale agreements, deed restrictions and other similar conditions and/or restrictions previously imposed on the Premises whether or not such previous agreements or restrictions were recorded. 4. IVlisre~resentation of Fact as a 2~aterial Breach. OWNER hereby declares and agrees that the financial and other information previously provided to the CITY for the purpose of qualifying to purchase the Premises was true and correct at the time it was given and remains true and correct as of the date of this Agreement, or, in the alternative, the financial and other information has been updated to be true and correct today. OWNER further understands that any material misstatement or misrepresentation shall be deemed to be a material breach of this Agreement and shall be grounds for declaring a default, terminating the Agreement, or seeking other such relief and remedies as are appropriate under the circumstances. 5. Conditions of Transfer. For purposes of the Agreement, "Transfer" shall mean any voluntary or involuntary sale, assignment or transfer of Ownership or any interest in the Premises, including, but not limited to, a fee simple interest, joint tenancy interest, life estate, leasehold interest including any rental of the Premises, or any interest evidenced by a land contract by which physical possession of the Premises is transferred and OWNER retains title. Any transfer of the Premises shall be subject to the conditions set forth in the Agreement. OWNER may not lease or rent the Premises for any period of time without the express, prior, written permission of CITY in accordance with Paragraph 2. Transferee shall execute an agreement under the terms of which the transferee shall assume all of the obligations and duties of OWNER and agree to be bound by the restrictions of this Agreement. 6. Prohibited Transfer/Default. Any transfer which is not in substantial compliance with the above conditions shall be deemed a "Prohibited Transfer". Upon receipt of any evidence of a Prohibited Transfer or any other violation of the terms of this Agreement, CITY shall give written notice to the OWNER specifying the nature of the violation. If the violation is not corrected the satisfaction of the CITY within ten (10) days after the date of the notice, or within such further time as CITY determines is necessary to correct the violation, CITY may apply to a court of competent jurisdiction for specific performance of the Agreement, for an injunction prohibiting proposed sale, Iease, rental or transfer in violation of this Agreement, for a declaration that the Prohibited Transfer is void, or for any such other relief as maybe appropriate under the circumstances. 7. Senior Lien Holder. Any attempt to transfer title or any interest therein in violation of these covenants shall be void, provided, however, that any deed restrictions SummerHill Homes, Inc. -Amended and Restated Affordable Housing Agreement Page 13 -15- herein shall be subordinate to a mortgage ("First Deed of Trust") held by a Senior Lien Holder and/or a federally or state chartered bank or savings and loan association qualified to do business in the State of California which mortgage was obtained at the time OWNER purchased the Property ("Senior Lien Holder"). CITY and OWNER acknowledge and agree that this Agreement is subject and subordinate in all respects to the liens, terms, covenants and conditions of the First Deed of Trust and to all advances heretofore made or which may hereafter be made pursuant to the First Deed of Trust held by a Senior Lien Holder including all sums advanced for the purposes of (a) protecting or further securing the lien of the First Deed of Trust, curing defaults by the OWNER under the First Deed of Trust or for any other purpose expressly permitted by the First Deed of Trust, or (b) constructing, renovating, repairing, furnishing, fixturing or equipping the Premises. The terms and provisions of the First Deed of Trust are paramount and controlling, and they supersede any other terms and provision hereof in conflict therewith. In the event of a foreclosure or deed in lieu of foreclosure of the First Deed of Trust, any provisions herein or any provisions in any other collateral agreement restricting the use of Premises to low or moderate income households or otherwise restricting the Owners ability to sell the premises shall have no further force or effect on subsequent Owners or purchasers of the Premises. Any person, including his or her successors or assigns (other than the OWNER or related entity of the OWNER), receiving title to the Premises through a foreclosure or deed in lieu of foreclosure of the First Deed or Trust shall receive title to the Premises free and clear from such restrictions. Further, if the Senior Lien Holder acquires title to the Premises pursuant to a deed in lieu of foreclosure, this Agreement shall automatically terminate upon the Senior Lien Holder's acquisition of title, provided that the CITY shall not have cured the default under the First Deed of Trust, or diligently pursued curing the default as determined by the Senior Lien Holder, within the 60-day period provided in such notice sent to the CITY. 8. Attorneys' Fees. OWNER hereby agrees to reimburse CITY the full cost and expense, including staff time and attorneys' fees and costs, incurred by CITY in an effort to correct any default or enforce any violation of the terms of this Agreement, and OWNER further understands and agrees that if such funds are not reimbursed, in addition to other available legal remedies, CITY may deduct same from the proceeds upon resale of the Premises. 9. Covenant Running with the Land. The terms and conditions set forth herein are intended to run with the land and shall bind OWNER and all successors, heirs, grantees and assigns, unless and until superseded by subsequently recorded agreements. These terms and conditions shall be made part of each deed subsequently recorded and shall bind each successor in interest until the earlier of (a) fifty-five (55) years from the date of recordation, or (b) the recordation of a subsequent and superceding agreement. Each successor in interest shall assume the rights and obligations set forth and herein undertaken by OWNER in this Agreement. This Agreement and the covenants contained herein shall survive delivery of the Deed. SummerHill Homes, Inc. -Amended and Restated Affordable Housing Agreement Page 14 -16- 10. Right of First Refusal. Except as provided herein, OWNER hereby grants and gives the City of South San Francisco or its designee or assignee a right to purchase the Premises under conditions set forth below. CITY, at it sole discretion, may assign this right to an individual buyer who meets the CITY's eligibility qualifications to participate in the program. CITY reserves the right to reassign the right to another eligible, qualified buyer in the event the initial designee fails or is unable to complete the transaction. Notwithstanding the foregoing, no assignment or reassignment of this right shall extend any time limits for performance under this Agreement without mutual, express and written agreement signed by both the OWNER and any assignee. i 1. Resale Procedures. A. Notice of Offer to Sell. Whenever the OVi~NER no longer desires to own the Premises, OWNER shall notify CITY of his or her intent to offer the property for sale in accordance with the terms of this Agreement. Such notice shall be in writing, and may be personally delivered or sent by certified/return receipt, first class mail through the United States Postal Service, addressed to Economic, and Community Development, CITY of South San Francisco 400 Grand Avenue, South San Francisco, CA 94080. OWNER's offer to sell may be withdrawn by OWNER, provided that notice of withdrawal has been received by CITY or its designee, in writing, prior to acceptance by CITY or its designee. B. Acce tance. CITY, its designee or assignee shall have sixty (60) days from the date of receipt of OWNER's notice to exercise the right of first refusal to accept OWNER's offer to sell the Premises. This acceptance shall be in writing, and personally delivered or sent by first class mail through the United States Postal Services, addressed to the OWNER of record at the official address of the Premises. For purposes of fulfillment of the terms of this procedure, the notice of intent to sell the premises shall be deemed to be an offer to sell, and the exercise of the right to purchase by the CITY or its designee or assignee shall be deemed to be an acceptance of that offer. Acceptance by CITY or its designee or assignee shall constitute a legally binding contract for the transfer of title, and once accepted, the offer to sell may not be withdrawn without the express, written consent of the party who accepted the offer. C. Escrow. Within thirty (30) days of the date of acceptance, an escrow account shall be opened by the CITY or its designee or assignee. CITY reserves the right, at any time during this process, to subsequently assign its right to purchase to an individual who is eligible and qualified to participate in the program. Once opened, an escrow must be closed v~~ithin thirty (30) days, unless both parties mutually agree, in writing, to an extension of time. In no case shall the time between receipt of an offer to sell and the date of close of escrow exceed ninety (90) days, unless both parties mutually agree, in writing, to extend that date, or if for any reason the time periods herein are tolled. 12. Transfer by Owner if Right of First Refusal is not exercised. In the event the City or its designee do not exercise its Purchase Option within sixty (60) days of the SummerHill Homes, Inc. -Amended and Restated Affordable Housing Agreement Page 15 -17- OWNER's notice pursuant to Paragraph 1 1, the OWNER may offer the Residence for sale to an Eligible Household who meets the income criteria for the BMR unit and at a price within the BMR restrictions set forth in Paragraph 14. The proposed buyer must purchase the property subject to this Agreement and will be required to execute, acknowledge and record an agreement under the terms of which the transferee shall assume the obligations and duties and agree to be bound by the restrictions of this Agreement. The OWNER must submit proof of the buyer's eligibility to the CITY for review and approval prior to close of escrow. 13. Owner's Obligation to Cooperate. At all times, OWNER shall ensure that the Fremises are clean and in good repair, and available io be shown to prospective buyers. OWNER shall cooperate with the City of South San Francisco and its respective officers, employees and representatives. Failure to comply with these conditions shall be deemed a material breach of OWNER's obligations pursuant to the terms of this Agreement, and upon determination by the CITY that OWNER has failed to comply with any of the above conditions, CITY shall notify OWNER that the time periods stated herein shall be tolled, and the applicable time periods extended accordingly, until OWNER has complied with all of the conditions of this Agreement. Acts by OWNER which shall be deemed to be a breach of this obligation include, but are not limited to, failure to make the Premises available for showing to prospective buyers upon reasonable notice, willful or deliberate actions to dissuade prospective buyers from purchasing the Premises, and failure or refusal to return telephone calls, complete forms, provide required reports, or perform other actions ordinarily required by a party to a real estate transaction in a timely manner. In addition to tolling the applicable time periods, the CITY may pursue any other remedies for breach based upon this section. 14. Purchase Price. The purchase price shall be paid in cash at the close of escrow or as may be otherwise provided by mutual agreement of buyer and seller. The purchase price of the Premises to an Eligible Household shall be fixed at the lower aanount as determined by using the following two methods: A. Fair Market Value. CITY or its designee or assignee shall have an appraisal made by an appraiser of its choice to establish the fair market value. The OWNER, at his or her own expense, may also have an appraisal made by a qualified appraiser of OWNER's choice to establish the market value. If OWNER elects to obtain its own appraisal, the time period during which the CITY has the option to perform pursuant to this Agreement shall be tolled for the period of time between the time the CITY obtains an appraisal and OtiVNER submits a separate appraisal. If an agreement cannot be reached as to the fair market value, the average of the two appraisals shall be deemed the market price, unless the difference between the two appraisals is greater than ten (10) percent of the amount of the higher appraisal, in which case CITY has the option of requesting a third appraisal be conducted by a qualified appraiser agreed upon by both CITY and OWNER, who will make an independent appraisal without knowledge of the results of the first two appraisals. The amount of the first two appraisals which is closer to the amount determined by SummerHill Homes, Inc. -Amended and Restated Affordable Housing Agreement Page 16 -18- the third appraiser shall be deemed the fair market value for purposes of this Agreement. B. Based upon Median Family Income (MFI). Original Sale Price of Premises: ($ ). Base Resale Price: The price at which the OWNER purchased the BMR unit shall be adjusted by the percentage increase or decrease in the median annual income for a family of four in San Mateo County. The percentage increase or decrease shall be computed for the period that the BMR unit is held by OWNER beginning on the date the OWNER acquired `die Premises based upon the date of recordation of the deed conveying the Premises. This adjusted Base Resale Price shall be increased by the market value, if any, of any documented, permanent capital real estate or fixed improvements approved by CITY. No price adjustment will be made except upon presentation to the CITY of written documentation of all expenditures made by OWNER for which an adjustment is requested. The adjusted price shall be decreased by the amount necessary to repair any damages and to put the unit into a sellable condition, including items such as paint, cleaning, constt-uction repairs, and to bring said unit into conformity with all applicable provisions of the South San Francisco Municipal Code. The value of price adjustments shall be reasonably determined by the CITY. 15. Wood Destroyin~ Pests and Organisms. OWNER shall bear the expense of providing a current written report of an inspection by a licensed Structural Pest Control Operator. All work recommended in said report to repair damage caused by infestation or infection ofwood-destroying pests or organisms found and all work to correct conditions that caused such infestation or infection shall be done at the expense of the OWNER. Any work to correct conditions usually deemed likely to Iead to infestation or infection ofwood-destroying pests or organsms, but where no evidence of infestation or infection is found with respect to such conditions, is not the responsibility of the OWNER, and such work shall be done only if requested by the buyer and then at the expense of the buyer. 16. Real Estate Transfer Disclosure Statement. OWNER is obligated to provide the CITY with a full disclosure of the condition of the premise under Civil Code Section 1102, et seq. The CITY will provide the OWNER with a Real Estate Transfer Disclosure form which shall be completed by the OWNER and submitted to the CITY with the OWNER's notice of intent to sell. The OWNER shall cure all noted deficiencies in accordance with Paragraph 18. 17. Deferred Maintenance. Any purchase price determined through the use of this method shall be adjusted by decreasing said price by an amount to compensate for deferred maintenance costs, which amount shall be determined in the following manner. Upon receipt of notice of OWNER's intent to sell, CITY or its designee or assignee shall be entitled to inspect the Premises. CITY or its designee or assignee shall have an opportunity to determine whether any violations of applicable building, plumbing, electric, fire, or housing codes or any other provisions of Title 16 of the South San Francisco Municipal Code exist. SummerHill Homes, Inc. -Amended and Restated Affordable Housing Agreement Page 17 -19- 18. PropertyDeficiency. In the event deficiencies are noted, the CITY or its designee or assignee shall obtain estimates to cure the deficiencies. The OWNER shall cure the deficiencies in a reasonable manner acceptable to CITY or its designee or assignee within sixty (60) days of being notified of the results of the inspection, but in no event later than close of escrow. Should OWNER fail to cure such deficiencies prior to the scheduled date of close of escrow, at the option of CITY, its designee or assignee, escrow may be closed, titled passed and money paid to the selling OWNER, subject to the condition that such funds as are necessary to pay for curing such deficiencies (based upon written estimates obtained by CITY, its designee or assignee), shall cause such deficiencies to be cured, and upon certification by CITY of completion of work, escrow holder shall utilize such funds to pay for said work. Any remaining funds shall be paid to the selling OWNER. No other payment shall be due said OWNER. 19. Assignment of Right to Purchase. In no event shall CITY become in any way liable to OWNER, nor become obligated in airy manner, by reason of the assignment of its right to purchase, nor shall CITY be in any way obligated or liable to OWNER for any failure of CITY's designee or assignee to consummate a purchase of the Premises or to comply with the terms of any purchase and sale agreement. Nothing in this Agreement shall be construed to obligate CITY to purchase any unit in the event that a buyer participating in the BMR program fails to complete actions to close escrow. 20. CITY Consent to Lease. Until such time as the CITY's right to purchase is exercised, waived, or expired, the Premises and any interest in title thereto shall not be sold, leased, rented, assigned, or otherwise transferred to any person or entity except with the express written consent of CITY or its designee, which consent shall be consistent with the CITY's goal of creating, preserving, maintaining, and protecting housing in South San Francisco for persons of low- and moderate-income. This provision shall not prohibit the encumbering of title for the sole purpose of securing financing; however, in the event of foreclosure or transfer by deed in lieu of foreclosure, the provisions of this instrurrient shall govern. This provision shall not prohibit acquisition through foreclosure or acceptance of a deed in lieu of foreclosure by Fannie Mae on any mortgage it purchases, pursuant to its participation in the Community Partnership Program. 21. Exempt Transfers. The following transfers of title or any interest therein are not subject to the right of first refusal provisions of this deed: transfer by gift, devise, or inheritance to grantee's spouse or issue; taking of title by surviving joint tenant or a surviving spouse of community property; transfer of title to a spouse as part of marriage dissolution proceedings; acquisition of title or interest therein in conjunction with marriage; transfer pursuant to provision of any Fannie Mae mortgage as described above; provided, however, that with the exception of Fannie Mae acquisitions through foreclosure or acceptance of deed in lieu of foreclosure, these covenants shall continue to run with the title to said Premises following said transfers. An instrument shall be executed, aclalowledged and recorded by the transferee containing the following covenant: SummerHill Homes, Inc. -Amended and Restated Affordable Housing Agreement Page 18 -20- "This property is subject to the terms and provisions of that certain `Agreement and Deed Restrictions Regarding Resale Controls for Below Market Rate Property'. Transferee, on behalf of transferee, and by transferee's successors and assigns, covenants and agrees to be bound by, and to perform in accordance with, such Agreement, and to include this covenant in any fiu-ther transfer of the property." 22. Default and Foreclosure. OWNER covenants to cause to be filed for record in the Office of the Recorder of the County of San Mateo a request for a copy of any notice of default and of any notice of sale under any deed of trust or mortgage with power of sale encumbering said Fremises pursuant to Section 2924b of the Civil Code of the State of California. Such request shall specify that any such notice shall be mailed to the City of South San Francisco, Economic and Community Development, 400 Grand Avenue South San Francisco, Califomia, 94080. Any notice of sale given pursuant to Civil Code Section 2924f shall constitute a notice of intent to sell hereunder and CITY may exercise its preemptive right prior to any trustee's sale, judicial foreclosure sale, or transfer by deed in lieu of foreclosure. In the event OVrTNER fails to file such request for notice, CITY's right to purchase shall run from the date CITY obtains actual knowledge of a sale or proposed sale. CITY or its designee or assignee shall have the right to cure any such notice of default. The exercise of such right to cure shall in no way affect the operation of the notice of default as a notice of intent to sell by OWNER. CITY, its designee or assignee, shall be entitled to recover all costs incurred in curing such default from OWNER. Such costs shall be paid through escrow from the proceeds of sale if the sale is consummated. If the sale is not consummated and OWNER retains ownership of the Premises, CITY, its designee or assignee, shall be entitled to recover its costs directly from OWNER. None of the foregoing shall be interpreted to impair the right of the FNMA (Fatuue Mae} to take legal action under the terms of its First Deed of Trust or to require FNMA to send default or foreclosure notice to any third party. In the event CITY fails to exercise its preemptive rights to purchase or prevent foreclosure or trustee's sale, a completed action of foreclosure or trustee's sale shall render this Agreement and the restrictions imposed thereby to be null and void and of no further force or effect. In the event CITY elects not to exercise its right to purchase upon default, any surplus to which OWNER maybe entitled pursuant to Code of Civil Procedure Section 727 shall be paid as follows: That portion of surplus (after payment of encumbrances), if any, up to but not exceeding the net amount that OWNER would have received after payment of encumbrances under the formula set forth above had CITY exercised its right to purchase the Premises on the date of the foreclosure sale, shall be paid to OWNER on the date of the foreclosure sale; the balance of surplus, if any, shall be paid to the CITY in order to compensate the CITY for the loss of the BMR unit and to preserve the purposes of the CITY's Below Market Rate Housing Program. 23. Entirety of Agreement. This Agreement comprises the entire agreement between the parties, and no other terms or conditions shall be deemed to apply, unless by a mutually executed, written amendment, modification or superseding agreement which references this Agreement. OWNER covenants that he or she has not, and will not execute any other agreement with provisions contradictory to or in opposition to the provisions hereof, and that in any event, OWNER understands and agrees that this Agreement shall control the rights and obligations between and among the parties and respective successors. SummerHill Homes, Inc. -Amended and Restated Affordable Housing Agreement Page 19 -21- 24. Severability. If any one or more of the provisions contained uz this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, then such provisions shall be deemed severable from the remaining provisions contained in this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision(s) had never been contained herein. 25. Distribution of Insurance and Condemnation Proceeds. Except as may be required to satisfy the first claim of the FNMA pursuant to the Community Partnership Program, in the event that the Premises consist of a Lunt in a condominium project and the condominium project is destroyed and insurance proceeds are distributed to OWNER instead of being used to rebuild; or in the event of condemnation, if proceeds thereof are distributed to OWNER; or iZl the event of termination of the condominium, liquidation of the association and distribution of the assets of the association to the members thereof, including OWNER, any surplus of proceeds so distributed remaining after payment of encumbrances of said Premises shall be distributed as follows: That portion of the surplus up to but not to exceed the net amount that OWNER would have received under the formula set forth above had CITY exercised its right to purchase the Premises on the date of the destruction, condemnation valuation date, or liquidation, shall be distributed to OWNER, and the balance of such surplus, if any, shall be distributed to CITY. 26. Nonwaiver. With the exception of the CITY's right to exercise a right of first refusal to purchase the Premises, pursuant to Paragraph 10 hereinabove, the failure of the CITY to take an action to enforce a right or to seek a remedy under the terms and conditions of this Agreement shall not be deemed to be a waiver by the CITY to take such action or enforce any rights it may otherwise have pursuant to this Agreement. 27. Notices. A11 notices required herein shall be sent to the following addresses: CITY Economic and Community Development City of South San Francisco 400 Grand Avenue South San Francisco, CA 94080 OWNER: By acceptance of this deed, OWNER accepts and agrees to be bound by the covenants contained herein. DATED: Signature of OWNER Print or Type Name SummerHill Homes, Inc. -Amended and Restated Affordable Housing Agreement Page 20 _22_ Signature of OWNER Print or Type Name Print or Type Address of Unit DATED: City of South San Francisco i3ar~y M. Nagel, City rvlanager SummerHill Homes, Inc. -Amended and Restated Affordable Housing Agreement Page 21 -23- EXHIBIT A SummerHill Homes"` 777 California Avenue Palo Alto, CA 94304 Tel: (650) 857-0122 Fax: (650) 857-1077 October 9, 2008 VIA HAND DEI.IVER~' AND CERTIFIED U.S. MAIL Barry M.~Nagel City Manager City of South San Francisco 400 Grand Avenue South San Francisco, CA 94080 Re: Park Station -Request for Waiver Dear Barry: Thank you for meeting with Elaine Breeze and me last week to discuss the precarious situation SummerHill Park Station LLC ("SummerHill") finds itself in with respect to its Park Station Project (the. "Project"), and specifically, the impact .that current market conditions coupled with the City's affordable housing requirements are having on SummerHill's ability to riove forward with its project. Consistent with the terms and policy of the City's inclusionary housing ordinance, SummerHill respectfully requests that the City waive application of its inclusionary housing ordinance with respect to the Project, in exchange fora $2,000,000 payment from SummerHill to the City for its affordable housing programs, as more particularly described below. Backarou~zd ., As you know, SummerHill has worked diligently with City staff to create a quality project that would preserve SummerHill's ability to make some profit, while at the same time meeting the City's affordable housing goals. As part of this effort, in October of 2007 SummerHill voluntarily entered into an Affordable Housing Agreement as required by the City's Inclusionary Housing Requirements. (Chapter 20.125 et seq.). The Affordable Housing Agreement was recorded on November 26, 2007, subject to the Iien of SummerHill's construction loan in favor of Bahl: of the West which was previously recorded in the spring of 2006. As illustrated by the recent shutdown of the "South City Lights" project by Watt Communities, the past year has brought a severe and, sudden downturn in the local real estate market, a trend that has accelerated in the past few months. The downturn is unprecedented even for those with decades of experience in the homebuilding industry. Given the severity of this doumturn, the bottom of which has yet to be reached, it has become clear to SummerHill that strict enforcement of the City's inclusionary housing ordinance and the Affordable un,,.c;nom .,. -24- October 9, 2008 Page 2 Agreement will impose on SummerHill an extremely large financial loss that it is unable and unwilling to absorb. The U.S. Supreme Court, as well as our own California courts, have clearly held that local goverrrnents cannot apply regulations in such a way as to become a taking. In the inclusionary housing context, California courts have stated that such an ordinance must contain a clause that allows for waiver of the ordinance's provisions if those provisions lead to unconstitutional results. As we discussed last week, Section 20.125.070 of the City's inclusionary housing ordinance contains such a waiver clause. This section provides that notwithstanding anything to the contrary in the inclusionary housing ordinance, the City Council has the sole discretion to craft an alternative to strict enforcement of the ordinance when such enforcement would "present unreasonable hardship in light of such factors as ... market competition [and] price." Considering the factors set forth below, SummerHill believes the waiver clause clearly applies to the Park Station project and should be used by the City to alleviate the unreasonable hardship the ordinance presents to SummerHill under current market conditions. As it pertains to the price factor set forth in the ordinance, when SummerHill executed the Affordable Housing Agreement in October of last year, valuations at that time enabled the market rate units to subsidize the affordable housing units while still affording SummerHill some profit. Using today's valuations (which it should be noted, may decline further), SummerHill stands to lose approximately $5,300,000 on the 20 inclusionary housing units alone if SummerHill caruzot sell those units at market prices. If the City rejects SummerHill's request for a waiver and i:isists on strict enforcement of its ordinance, SummerHill will lose approximately $9,000,000 on the Project. What this means is, even if the City grants SummerHill its waiver as requested in this letter, ,SummerHill still stands to lose approximately $S, 700, 000 on the Project (which includes the $2, 000, 000 payment to the City as proposed in this letter). Market competition is also causing SummerHill unreasonable hardship in its effort to create a viable project. Even though SummerHill's product is new, it still must compete with the growing number of bank owned properties, short sales and other distressed sales that buyers are taking advantage of, often at prices which we cannot compete with. Market competition also pertains to the buyer pool. Stringent new lending requirements have made it more difficult than ever for buyers to qualify for loans, particularly low to moderate income buyers. Thus, SummerHill is competing against banks, who are selling distressed assets at huge losses, to the same, shrinking pool of qualified buyers. The fact that SummerHill has signed an Affordable Housing Agreement with the City is not the controlling factor here. Section 19 of the Agreement provides that it must be interpreted in accordance with the inclusionary housing ordinance, and as established above, the ordinance allows for a waiver in circumstances such as these. More importantly however from the City's perspective, should Bank of the West foreclose on the Project, they would take the Project free and clear of the Affordable Housing Agreement since their deed of trust is senior in priority to _25_ October 9, 2008 Page 3 the Affordable Housing Agreement, and they did not subordinate their deed of trust to the Affordable Housing Agreement. A foreclosure by the bank would wipe out the City's Affordable Housing Agreement by operation of law and they would be able to sell all the units at market prices. Indeed, the City's own Resale Restriction, attached as Exhibit C to the Affordable Housing Agreement, contemplates this very outcome (see Section 7 entitled Senior Lien Holder, which provides that a foreclosure or deed in Iieu would relieve the owner and their successors from any affordable housing requirements). Our outside counsel concurs with this analysis. SummerHill's Proposed ~4lternative SummerHill recognizes and understands that the inclusionary housing ordinance supports important housing policies and goals of the City, namely, to provide affordable housing to its residents. SummerHill's proposal is to pay the City $2,000,000 to be used by the City toward the creation of affordable housing units in the City. These funds would assist the City in meeting its housing requirements and would support the City's housing policies and goals. The mechanics ,. of the payment would be as follows: $1,000,000 would be paid when SummerHill has closed on half of the units at Park Station, and the remaining $1,000,000 would be paid at the close of escrow of the last unit at the Project. SummerHill would agree to a regular reporting schedule so the City would be kept current on the number of sales to date. SummerHill would give the City a second deed of trust against the project to secure SummerHill's payment obligation to the City, subject to the inclusion of partial release provisions satisfactory to Si~mmerliill. Additionally, SummerHill would waive any litigation claims against the City relative to the inclusionary housing ordinance as it relates to the Project. In exchange, SummerHill respectfully asks that the City Council exercise its authority and waive application of the inclusionary housing ordinance on the Park Station project, and that the Affordable Housing Agreement be revised of record to provide for the $2,000,000 payment and to remove the entire Park Station project from the City's inclusionary housing ordinance such that SummerHill can sell all 99 units at market prices. Again, please keep in mind that the waiver SummerHill seeks is not a. windfall to SummerHill. We still will lose approximately $5.7 million dollars if the City grants our waiver request and the Project, by all business standards, will be a financial disaster for SummerHill. Nevertheless, we think this proposal gives the City an opportunity to still realize substantial benefits towards its affordable housing goals, while at the same time minimizing SummerHill's losses to an extent that would allow us to move forward with the Project. In addition to receiving the $2,000,000 affordable housing payment, the City will realize greater property tax revenue in the future by allowing all units at the Project to be sold at market prices. This is an urgent matter and SummerHill requests that the City Council consider this matter at its next meeting. Please let us know as soon as possible if and when this matter will be placed on the City Council agenda, or if you have any questions or need further documentation in support of our waiver request. -26- October 9, 2008 Page 4 This letter does not constitute an admission by SummerHill as to any matter. This letter does not waive any of SummerHill's rights and remedies under any agreement with the City, nor does this letter waive any of SummerHill's rights to seek remedies in any court of law or equity against the City. Thank you very much for yo~ar consideration. Very truly yours, Joseph M. Head President, SummerHill Land cc: Robert Freed, CEO Bob Kennis, General Counsel Jason Biggs, Assistant General Counsel Andy Faber, Esq. (via facsimile) _27_ EXHIBIT B Sll~m~rH1ll Homes$"' 7.77 California Avenue Paia Alto, GA 943.04 Tei: (650):.87-0..1:22 Fax- (650.,;$57-107:7 November: l l; 2'Og8 'VLA."E-MAIL AND OVERNIGHT MAIL Barry.M. Nagel City 1~anager City of South San Francisco 400 Grand-Avenue South .San Francisco, CA 9080 Re dark Station Dear Barry: As you are aware, an Thursday l~lovember ~, 240, representatives .of .SummerHill Park Station LLC ("SurnmerHill")' and the City finalized an agreement in principle on a revised belt~vv market rate program for SummerHill'~s Park station Project which would still provide the City with. affordable housing .at .Park Station while minimizing SummerHi l's enQmious economic losses, allowing SummerHill to move forward with the Project; This :agreement between SumYnerHill :and the City is in response to the::severe and sudden downturr in 'the local real estate: market that continues to accelerate and has yet to find bottom. The downturn is unprecedented even. for those with decades of experience in the homebulding industry, Even though SummerHill's product is new., it still must .compete with the constant stream of banlE owned properties, short sales. and .other distressed .sales that buyers are taking. advantage :o£ Meanwhile, stringent nex~v lending: requirements hate made ~it more difficult than evear for buyers. to :qualify for loans. In Qctober of 20:07 when SummerH3ll entered into the Affordab`Ie Housing Agreement .with the City, the :economics of the Project at that time were anticipated fo al.law SummerHill to make some profit vhile providing affordable housing;-units to the City. Today, the freefall in borne prices presents SummerHill with a staggering loss of approximately Nine IV.[il'lion `Dollars '($9,000;000) if the existing Affordable Housing Agreement is not amended, Given these. historic circumstances, and recognizing SummerHill's continued willingness and desire to corn Iete the Project and su. l affordable housm units to the Ci the attics p J pP y g ty, p have agreed nprinciple on the following modifications to the Affordable Housing Agreement, as summarized belouw. _Zg_ November: I1,_ 2Q0.8 Paga 2 f4nze~dments ~o ~4f, fordable Ho.using,4greetrze~zt Under the new agreement, SurnmerHill will provide 15 below market rate units, eliminate the 1 fractional unit by selling an affordable .unit at a .lower income. percentage, and r-emove: 4 units through the payment of an: in-lieu fee, :as follows: 1. ~glit (8,} "Sold" ~Iraits: As you know, SumnerHill =has received offers on eight ($} inclusiorary housing units, which have not"yet. been accepted b3! StunnzerHill. Pursuant to~the recommendation from First Home, the City's affordable housing consultant, the underwriting for these~eight {8) "sold' :units would be revised. by increasing household sizes from 1.5 to 2 people. on the 1 bedroom units. and from 3 to 4 people on the 2 bedroom units. Additionally, the incomes of 2 of the S t~uyers has °increased, so the meelan income levels. for those 2 units vvi:ll be increased accordingly. SurnrnerHill will work diligently with First Horne and the buyers of the -eight ($) sold units to find financing for. their respective purchases.. However, if any.of the eight (8} buyers cannot qualify fqr financing or simply no longer desire to proceed with their purchase, then those units falling out o~ contract would'.be sold under the increased family size assumptions. and the;increased median income ranges as described inSection 2 below. 2. Seven (7) ~Iitits :With Modified Underwritixg C'rireria .El%minat~fl~t of Fraetior~al Unit:. 'The underwriting :assumptions for seven (7~ of the unsold. $MR units (identified on the attached spreadsheet} will: be changed to :allow .fora .higher :sale price by increasing the gross ~.ncornes for. the buyers to 80°ffl, 9.0%, 10'0% :and 1 ~0°la of median .income. The exception would be for unit 2'16, whose income category is not bemg;inereased as is the case with the other affordable units, allowing the 'C'ity to remove ~e:.fractional. unit currently provided far unt3er the Affordable Mousing Agreement, ;consistent with :how other developers have: satisfied fractional unit requirements in the past. Additionally, houschold sizes.. for all seven ('7} unsold units would be increased on the ;one (1 }bedroom units from 1.5 to 2 people, .and increased. from_3 to 4 people. on.the two (2) bedroom units. If any of the eight ($} sold BMR units fall :out of contract, then those units would be sold to those with gross incomes at the: upper end. of .the stated median income and at the same increased household sizes provided for above. 3: Maur ~4) biz lieu Units:: Four (4}units would be removed from the Affordable. I-lousing Agreement and would be sold to buyers as market rate units, in exchange for the payment to the City of an in-lieu.. fee of Four Hundred Thousand Dollars ($400,0.00} ($100,000 per unit}, which would be paid by SummerHill in full. no later than ten t10} days: after mutual. execution and recordation. of .the revised Affordable .Housing Agreement and' after expiration of any challenge or appeal period relating 'to the: approval of .the revised Affordable Housing Agreement. Rental Alternative SummerHill and the :'City have also agreed in principle an giving Summ:.rHll the option to convert Park. station to a rental project, using parallel modifications to the. Affordable Housing -29- November° 1-1,. 2:OQ8 Page .3 .Agreement as are described in the for sate context elescribeci above. Thee income levels .and family: sizes: for all ~1S rental urtits'would be adjusted as shown on the attachecl.:spreadsheet (with the exception of ,unit: 216, whose income leve would not be increased in order to eliminate :the fractional unit}. The ~ :buyers who have made offers on affordable-units would be given the f rst opportunity to -rent the wine affordable housing. unit they. submitted their offer on: If they elect not to rent-the unit,then those units would.be rented to those with.,gross incomes at the upper end of the stated median income and at the same increased household sizes provided for above. Four of the uu~ts would be removed from the Affordable Housing Agreement. through payment of the $40.0,000 in-lieu fee, payable as .set forth. above. Under the for-rent scenario, the Project could. be carttinuously operated as an apartment complex. However, SuYnmerHill's condominium .:map would remain on'the Project, and-should SummerHill, or :any successor iri interest, ever .decide to convert the Project. to condominiums, upon the sale of the .first unit in the Pzoject,'the entire: Project woulcl autornatcally:revert back to and be governed. by the current. Affordable Housing Agreement (including the. four (4) units previously removed through. payment of the .in-lieu fee).. Indep~nde~xt Review by Keyser Marston Please keep in .mind that while the revised Affordable Housing Agreement will help. Sumrr~:erHill rninirnzze 'its losses at the Project,. we still will Iose approximately $7.9 million dollars- under the. revised Affordable Housin A reement g g ,and the Project, by all business standards, will be a financial disaster for: SummerHill. The City has or will. soon engage Keyser 1VIarston Associates to independently verify SummerH..l2's :loss calculations, and Summer~-iill has agreed to provrde:Keyser Marston with access :to S:urnmerHi.ll's books anci records :for the Project to facilitate. such: review.. SummerHli has also agreed to remburse the City .for the cost, of Keyser.Marstan's review. Vie are grateful to the City for their willingness to work with SumrnerHill through these historic and .challenging times. Their professionalism and .creativity throughout our discussions should be commended, 'Thank you very much, for your consideration. ~~ tr~lyyou~s, . ~~~ ~~„~,, 7oseph M. Head President, SumrnerHill Land cc: Robert Freed, CEQ Bob KenriFS, General Counsel Jason Biggs, :Assistant General Counsel s.~y Woodruff, Meyers Nave Armando Sanchez -30- November 1.1, X008 Page 4 SummerHll Homes Park Station - B1VIR Pricing ~ M[ix For-Sale nit-# nit T e MR T. e Initial % 1Vedian Income Grou Sold~t.Tnsold Status Revised 1vIedian Incarne Grou 1Q1 lBR Love 60-70% Sold b~-74°fu 1.04 2BR Low 60-70°Xo Sold 64=74% 1:06 2BR Low SQ-60% Sold Sa-6Q% 1..1.5 lBR Low- 5o-60°Jo Sold 54-64% 124 2BR Median 80-90% Sold 84-9.4'00 20:~ * ~2BR :Low 70-$'0% Sold '14=84%a 2:14 1B'R- :Love 60-70°~0 . Sold !i'4-74°l0 .3:0:4 * 2BR Median ~:U-I00% Sold 9a:1.0Q% 21~ ** 1BR Low 60-70% Unsold fiQ% 21;D IBR Low 70-80% Unsold 80% 2t)2 1BR Median 80-9d% Unsold '90%0 313 lBR Median 8090%o Unsold 90% 12.1 `1BR Median 90-.100% Unsold 100% 220 1BR Moderate- I QO=1 I0°~o Unsold 120% .'223 1BR Moderate 104-1I0% Unsold. :120% .Prices are to be revised higher per Firsfl~'orrte recommerzdatio~~. * Median income ,group fo be increased per buyer income increases. ** 1Vledian income not:changed in exchange for loss of fractional unit. Units 148, 207, 209 and 30"S and 32i removed°thr~ugh in=lieufee and loss of l :fractional unit. -31- November 11:,.2408. Page;S Summer.H1 H©mes Park S~tato~n -.B1VIR Pricing & IVI..Rentai IncoAie ~I ' P,Rs Percenta{Ie Knits ~, 1 `BR 60-7~°Io 3 . 1 B'f~ ~0-80% 1 1 'BR 80=90°In 2 1 BR 90=~ 0:0% 1 1 BR 100-710%0 2 BFt 50-CO% 1 , 2 ;BR 60-70% 1 .2 BR 70=8(J% 1 2 BR 80-9Q% ~ 2 B'R 90-1.00°7a ~ 2'.BR 1.00-11'0% 0 1 F3°R 1 p 2 BR Tofai ~: -32- Exhibit C Revised BMR Pricing Proposed Unit Pricing AMI Price Adjusted Percent Unit # Description Status AMI Current Current Proposed Increase Pricing Increase 10'.1 1 B / 1 B Sold 60%-70'% $.126,885 70% ' $28-.;433 $155,31''8 22-% 104 2B / 2B Sold 60a/o-70% $165,656 70% '' $38':;722 $2D4,378 23% 106 2B'/ 2B Sold 50%-60% $129,867 60%.,' $35;,417 $1':65,284 27% 115 1 B / 18 Sold 50°10-60% $97,06fl '60% $26;395 $123,455 27% 124 2B / 2B Sold 80%-90'% $237,225 90% $61,075 $298,300 26% 205 2B f 2B Sold 7C?%-80% $201,44$ 80°l0 $42,027 ' $243,473 21%' 21~+ 1B / 16 Sald 60%-70°io $126,$;85 70°io-' $28-,433 $1'55,31$ 22°l0 304 ZB 12B Soid 90010-100'.% $273,024 1'.00% $46;576 $319,60Q 17% 216 1B / 1B BMR 60%-70% $126,885 60% $22,965 $149,850 18% 210 1 B / 1 B BMR 70%-80% $156,709 80% $60,891 $217,600 39% 202 1 B / 1 B BMR 80%-90% $186,533 90% $53,617 $240,150 29% 313 1 B / 1 B BMR 80%-90% $186,533 90% $53,617 $240,150 29% 121 1 B / 1 B BMR 90%-100% $216,358 100% $41,192 $257,550 19% 220 1B / 1B BMR 100%-110% $246,182 120% $17,018 $263,200 7% 223 16 / 1B BMR 100%-110% $246,182 120% $17,018 $263,200 7% 321 1 B / 1 B Released 100%-110% $246,1:':82 209 2B / 2B ' Released 80°/fl-90°l0 $237,235 '108 2B / 2B Released 90%-100% $273,024 207 2B / 2B Released 100%-110..% $308,813 308 2B 12B . Released 100%-110.:% $.308,813 -33- ~~xs`d~~{~. Redevelo meat A en o~ , - ~ p g y ~. y ~° Sta Re ort 9LIFOR~l DATE: November 19, 2008 TO: Honorable Redevelopment Agency Board FROM: Jim Steele, Agency Financial Officer SUBJECT: UPDATE ON 2005 REDEVELOPMENT (RDA) BOND PROCEEDS AND RDA FINANCIAL UPDATE RECOMMENDATION The following information is being presented for the Board's information and discussion. No action is required. BACKGROUND/DISCUSSION Bond Sale Proceeds The Agency sold $71 million in tax allocation bonds in April 2006. Of that amount, $56 million was in new money, and another $15 million was to retire/defease older Gateway and Downtown bonds at a more favorable interest rate. Of the initial $56 million in new money, $44 million has been spent to date, and another $18 million is budgeted for several other capital improvement projects. (The total is now $62 million, including $6 million in interest earned on unspent bond funds since the sale). Attachment 1 shows this information in more detail. While all 2006 bond money has therefore been earmarked, the Board always has the option of reprioritizing projects already funded but not yet spent. Financial Update As the Board is aware, Agency revenues this year have been affected by the State budget action that to date has taken $1.8 million in RDA funds from the Agency and reallocated those funds to help the State meet its educational funding obligations. In addition, there is a pending property tax appeal and related superior court decision involving a large biotech company that may result in a refund (net of prior pass through payments] of approximately $7.5 million dollars. However, as described in more detail below, staff has learned recently from the County that new development coming on the tax roll has increased the Redevelopment Agency tax increment received this year by $9.0 million. This amount will offset most of the one-time revenue reductions that are likely to occur this year. Staff Report Subject: Update on 2005 Redevelopment Bond Proceeds and Financial Update Date: November 19, 2008 Page 2 of 4 AV Increase The last estimate of total assessed value provided by the County of San Mateo Assessor's Office prior to setting the 2008-09 budget was dated March 31, 2008. Staff used that projection to estimate property tax increment for the 2008-09 budget. The actual role was finalized in August, and staff received new tax property tax numbers in late October. Those actual numbers showed a $ 0.9 billion growth in assessed value (AV) in the Redevelopment areas, translating to a net $9 million increase in tax increment revenue over the amount budgeted. This assessed value and tax increment increase are concrete results of the success of the Redevelopment Plan in bringing new development and jobs to South San Francisco, and affirm the Board's prior decisions on development projects that have been beneficial to the City and region. The increase comes primarily from new development coming on the rolls in the Shearwater ($2.6 million) and the Downtown ($5.6 million) project areas, but also from Gateway. The Shearwater increase is primarily due to the new construction activity that has taken place in the Britannia project located along Veterans Boulevard. Approximately half of the tax increment increase in this area is from the 96,500 square foot Amgen building that was completed in 2007 and is just now hitting the tax roll. The Downtown increase is primarily due to new construction activity that has taken place in both the Britannia East Grand project and the Britannia Pointe Grand project. Approximately half of the tax increment increase in the Downtown area was from the East Grand project. The Pointe Grand project along with the two new R&D buildings located on East Jamie Court comprised the majority of the remainder of the increase in tax increment in the Downtown area. Impact of Higher AV on Redevelopment Program The higher AV means that once the bond markets settle down from the recent financial turmoil, and once we expend our remaining bond funds, the Agency can consider selling additional bonds. However, there are certain complicating factors that need to be considered as the Board contemplates next priorities. Staff expects that factors, discussed briefly below, will take several months to work through with redevelopment and fiscal consultants. Redevelopment Caps Consistent with California Redevelopment Law, our Redevelopment Plan is constrained by several caps that are set when a Redevelopment Plan is adopted. Those caps are outlined below: Staff Report Subject: Update on 2005 Redevelopment Bond Proceeds and Financial Update Date: November 19, 2008 Page 3 of 4 Ca Definition Bonded Indebtedness How much in total bonds can be issued at one time. Tax Increment Cap How much total tax increment revenue can be collected prior to the Redevelo ment area expiring. Time limit for Sellin Bonds When the last ear a bond sale can occur. Time Limit for Tax Increment Receipt If the tax increment cap is not reached, when the project area must cease operations/expire. When the Board approved the fiscal merger in 2005, there were two primary benefits from the merger. First, prior to the merger, non-housing redevelopment dollars from the stronger project areas, such as Downtown, could not be spent in the weaker project areas (El Camino). After the merger, non-housing and housing redevelopment funds could be spent anywhere within the Redevelopment areas across all project areas. This is what allowed us to purchase the Ron Price and PUC properties, for example. Second, prior to the merger, each project area had separate, individual tax increment caps. Each project area was constrained such that when it reached its individual cap, it would have to cease operations. As part of the fiscal merger, the tax increment and bonded indebtedness caps were each merged into one combined total cap for the entire project area, with the exception of the new, added Marina Area (see below). Under the merged areas, those combined caps are now a total of $796 million (for collection of total tax increment) and $232 million (for the amount of outstanding bonds at one time). The Agency was projected at that time of the merger to reach the $796 million cap in approximately 2035-2040. The Agency has clearly benefitted from the added flexibility from the merger, as demonstrated by the ability to execute a large bond sale and use the bonds to fund needed projects across all areas. Tax increment has grown much faster than projected, again pointing to South San Francisco's success in attracting new business development. For example, when the bonds were sold in 2006, tax increment was $20 million. With the newest County updates, tax increment for 2008-09 is now $37 million, an 85% growth in three years. With that success, the tax increment cap of $796 million will likely be reached much sooner, probably no later than 2021, possibly as early as the 2015-2018 timeframe. When the cap is actually reached it is determined by factors that are not easy to predict. For example, the extent that new development continues to occur is a key variable, as well as the extent to which there are downward AV values resulting from a recession. To date the Agency has not been impacted much by downward assessments as the economy has soured. While significant drops in AV are somewhat unlikely for the Agency, because the biotech industry is somewhat insulated from the fluctuations affecting the regular economy in a recession, it is possible that downward adjustments could occur. Assuming no dramatic AV drop, then, it is likely the cap could be reached in the 2018 timeframe. That has implications for our plans for any future bond sale. Here is a list of constraining factors that will need to be addressed as we work with our redevelopment and fiscal consultants over the next 6-12 months, and as the Board determines future priorities: Staff Report Subject: Update on 2005 Redevelopment Bond Proceeds and Financial Update Date: November 19, 2008 Page 4 of 4 • The 2006 bonds have debt service payments going out to 2035. In the next 5 years, we will need to begin setting aside additional revenue to pay off those bond, since the TI will expire somewhere in the 2018-2021 timeframe. The much higher tax increment will allow us to do that as soon as is needed. • If we sell bonds again, we will need to sell them so that they have a shorter time horizon, with the last debt service payment extending to no farther out than 2021, when we may reach the cap. • Depending on how fast growth occurs, and how quickly we need to set aside dollars for bond retirement, we may want to consider more pay as you go (cash, not bond funded) capital projects • At the time the merger was completed, the Agency also added the marina area to the Redevelopment Project area. That new, added marina area is exempt from the $796 million total tax increment collection cap. That means that when the $796 million in cumulative tax increment is reached, the old project areas no longer will be able to collect tax increment, but the new, marina area can continue. However, the bond limit on that new area is $15 million in new bonds that can be supported by just the marina development. We have several options for the marina area: we can continue to use all project area revenue to fund marina area improvements until the $796 million cap is reached; and/or we can consider increasing the bond limit for the marina area at some point. FISCAL IMPACT: Tax increment has grown much faster than projected 3 years ago. There is approximately $18.0 million remaining from the original 2006 bond sale, and it has been budgeted for the downtown parking garage, train station improvements, additional Lindenville Pump Station and Storm Drainage improvements, and miscellaneous smaller projects. CONCLUSION: The success of development within the Redevelopment project areas presents the Board with many financial opportunities, but within tighter time constraints. Staff will be working with our redevelopment and fiscal consultants over the next 6-12 months to model different financial scenarios, and to bring options back to the Board to most optimally meet Board priorities. ('~' ,., By: ' Jim ~Sele Agency Finance Officer Approved• °~ (. M. Nag Ag ncy Directo Attachments: Bond Funded Capital Projects, 2005-06 through Current RDA Financial Update Housing Fund Financial Update JSlBN:ed ATTACHMENT 1 RDA Study Session, 11/19/08 RDA Bond-Funded Capital Projects 2005/06 through 2008/09 Updated 11/5/08 Original Bond Sale (New Money) 56,270,000 Interest Earned to Date 6,139,000 Total 62,409,000 TOTAL- RDA Capital Projects Spent Still Committed BOND FUNDS PUC Purchase (First Phase) 11,619,000 - 11,619,000 Cal Water Land Acquisition 1,100,000 - 1,100,000 Miscellaneous Land Acquisitions 75,558 920,758 996,316 EOC Classroom 1,302 998,698 1,000,000 Train Station 93,694 2,056,306 2,150,000 Annual Sidewalk Repair Program 25,000 25,000 New Library Interim Improvements 10,394 489,606 500,000 New Fire Station 3,306,223 - 3,306,223 Miscellaneous City Building Improvements 250,334 249,666 500,000 Bay Trail Improvements 18,000 - 18,000 Fire Station Training Tower 1,600,182 - 1,600,182 Lindenville Pump Station & Storm Drain 7,704,243 1,906,213 9,610,456 Oak Ave Extension 138,100 0 138,100 Subtotal, CIP projects 25,942,029 6,621,248 32x563,277 Advances Oyster Point Fly Over & Hook Ramps 16,431,519 - 16,431,519 Advance to Sewer Fund for Wet Weather IV 1,700,000 1,500,000 3,200,000 Advance to Parking District Fund for Miller Parking Garage - 10,000,000 10,000,000 Subtotal, advances" '[8z'f31s519 11,500,000. 29,63'1,519 TOTAL 44,073,548 18,121,248 6.2;194,796 * Advances will eventually be paid back to the Redevelopment Agency from the Parking District, Oyster Point Impact Fees, and Sewer rates. ATTACHMENT2 RDA Study Session, 11/19/08 MERGED REDEVELOPMENT PROJECT AREA SUMMARY Summary of Revenues and Expenditures Actual Actual Adopted Projected 2006-07 2007-08 2008-09 2008-09 REVENUES Gross Tax Increment Allocated Gateway Shearwater Downtown EI Camino Subtotal Less ERAF shift Adjustments: Other Appeals & Settlements Adjustments: County Admin & Other Rent Interest & Other TOTAL SOURCES OF FUNDS: EXPENDITURES Redevelopment Activities Prior Year Tax Adjustment Capital Outlay Debt Service Special Projects County Settlement Transfers to Low/Moderate Income Housing Fund Pass Through Payments to Taxing Entities Gateway Shearwater Downtown EI Camino Subtotal, Pass Through Payments Capital Projects Tax Increment-Funded Projects, Current Tax Increment Carryovers from Prior Year Subtotal, Capital Projects TOTAL USES OF FUNDS: Excess of Revenues over (under) Expenditures Prior Year Audit Adjustment Fund Balance Reserved for Loans Receivable Designated for Capital Projects Reserved for Advances to Other Funds All Other Reserved Funds Unreserved / Undesignated Fund Balance 7,465,681 8,519,479 8,173,154 8,853,961 3,202,423 3,847,502 3,334,927 5,936,854 10,145,145 12,749,421 12,602,501 18,197,328 2,915,991 3,445,927 3,954,947 3,826,538 23,729,240 28,562,329 28,065,529 36,814,681 - - (1,760,000) 2,217,703 (753,117) - (300,000) (164,858) (434,315) (280,655) (368,147) 162, 592 104, 859 105, 000 105, 000 2,530,307 3,324,354 1,274,000 1,274,000 28,474,984 30,804,110 29,163,874 35,765,534 2,053,551 2,842,811 4,357,835 4,357,835 8,416,485 3,800,000 - 14,029 36,506 61,000 61,000 3,103,991 4,865,618 5,115,751 5,115,751 900,000 900,000 689,481 823,872 850,000 850,000 4,600,681 5,561,843 5,583,106 7,332,936 203,466 324,034 463,043 641,623 825,987 1,003,929 884,294 1,678,592 2,261,955 3,072,717 3,049,710 4,197,903 245,826 254,941 317,467 290,641 3,537,234 4,655,621 4,714,514 6,808,760 59,650 14,658,664 1,235,800 1,235,800 3,817,146 59,650 14,658,664 1,235,800 5,052,946 14,058,618 41,861,419 26,618,006 30,479,228 14,416,366 (11,057,309) 2,545,867 5,286,306 41,337,292 30,279,982 35,566,289 206,094 264,215 564,215 8,163,360 1,448,246 - 12,200,215 19,409,727 29,409,727 348,606 291,166 - 20,419,017 8,866,629 - 5,592,347 ATTACHMENT 3 RDA Study Session, 11/19/08 LOW & MODERATE HOUSING Summary of Revenues, Expenditures, and Changes in Fund Balance Actual Actual Adopted Projected 2006-07 2007-08 2008-09 2008-09 REVENUES Transfers In from Redevelopment Project Areas 4,600,681 5,561,843 5,583,106 7,332,936 Interest & Other 1,867,141 928,545 300,000 300,000 Misc. Revenue /Rent 143,200 120,650 100,000 100,000 Total Revenues: 6,611,022 6,611,038 5,983,106 7,732,936 USES OF FUNDS Program Expenditures 821,706 645,775 3,499,154 3,499,154 Capital Outlay 681,019 - - County Settlement 359,332 750,000 180,000 180,000 Debt Service 278,952 276,877 348,235 348,235 Housing Capital Projects (TI-funded) 2,620,000 - 5,131,224 Housing Capital Projects (Bond-funded) 700,930 - - Total Uses of Funds: 2,160,920 4,973,671 4,027,389 9,158,613 Excess of Revenues over (under) Expenditures 4,450,102 1,637,367 1,955,717 (1,425,677) Fund Balance 20,224,635 21,862,001 20,436,324 Less: Loan Commitments to 1,026,632 1,026,632 1,026,632 Mid Pen and Other Loans Receivable 4,823,786 4,538,938 4,743,000 Bond Funds, End of Year 2,137,276 2,211,597 - 2,211,597 All Other Reserved Funds 6,373,740 7,138,999 - 100,000 Unreserved / Undesignated Fund Balance 5,863,200 6,945,836 - 12,355,095